Xinyuan 1Q17 Contract Sales Estimate from CRIC

China Real Estate Information Corporation (CRIC – a subsidiary of E-House) released estimated 1Q17 sales data for the country’s top 100 property developers (LINK). Xinyuan China is shown at #72 with estimated attributable sales of 4.49Bn RMB for the quarter.

CRIC does not have access to any official company records and compiles its estimates from 3rd party sources like municipal data. “Sales” estimated by CRIC are never going to equal “contract sales” reported under US GAAP financial statements and “contract sales” are also different from “revenues” reported by Xinyuan under percentage of completion accounting. Some of the sales in the CRIC data do not end up being closed and some are recognized in later periods (Xinyuan does not book a “contract sale” until it has received 30% of the price in cash). Even though the numbers don’t match, CRIC data in prior quarters has been a good indication of the trend in Xinyuan results:

Nearly all of Xinyuan’s projects are in cities where local governments have implemented housing market restrictions intended to reduce upward price pressures. During the third quarter conference call Xinyuan CFO Helen Zhang explained that the company was intentionally delaying sales launches on some projects (Kunshan, Tianjin, Zhengzhou) where the market value was above the maximum selling prices permitted at that time under new rules. During the fourth quarter conference call Helen Zhang explained that 1Q17 sales were expected to be about the same as 1Q16, but that was dependent on a sales approval from the Zhengzhou government at one project. If that approval were delayed then a significant sales volume might not be recognized until 2Q17. These factors introduce greater than normal uncertainty into short-term results, but they also reflect the fact that Xinyuan is now well-positioned with projects in strong markets. CRIC’s 1Q17 estimate is well ahead of last year and suggests that Xinyuan has achieved robust sales despite the widely publicized housing market restrictions.

Xinyuan prepared a large cash balance in anticipation of land acquisitions in 4Q16 and 1Q17. So far only a small amount has been used, 697mm RMB for land adjacent to the Zhengzhou International New City project and 236mm RMB for a new site in Changsha. Strong contract sales and small land purchases should leave the company in relatively strong financial condition right now.

Hi Herman, Helen Zhang said the land budget was 2Bn in 4q16 and 4Bn in 1q17. They ended up spending less than 1Bn. Repurchases are constrained by the bond indentures (max $50mm/yr for dividends + buyback). So they might have spent 100mm RMB on buyback. That leaves a lot of money either sitting on the balance sheet as cash or used to pay down higher cost debt. Either way I think the company is now in relatively strong condition, but the land market is tougher than expected.

I think the management is being caution there. The price restriction may last longer than the management expects, and it will be very bad for XIN. The new regulations in Beijing are insane, and it’s likely that the rules will be copied by other cities. I believe it’s better for the management to keep the cash and wait until the dust settles a bit.

On a side note, the property management subsidiary of the company is listed on the China OTC market recently. The code is 870929, but I cannot figure out the share price and the market cap, tho. XIN owns 75% of it, so it will be a nice price discovery opportunity for XIN.